PEO President and CEO, Leon Goren Moderates ‘Dream Team’ Panel Of Five Top Bank Economists

North American outlook is strong, though not without challenges.

The Vaughan Chamber of Commerce, in its monthly breakfast assembled a Dream Team of the country’s five leading bank economists, and PEO’s own Leon Goren led them through a presentation covering the full range of economic challenges facing the Canadian and international economies. The economic panel included Earl Sweet, BMO; Benjamin Tal, CIBC; Robert Hogue, CIBC; Derek Burleton, TD and veteran PEO presenter Warren Jestin, Scotiabank.

Among the key issues the economists raised were:

  • Economic growth
  • Housing
  • Interest rates
  • Value of Canadian dollar
  • Unemployment rates
  • Health of manufacturing
  • Government spending
  • Tax rates

When Leon asked the five economic heavy hitters about how they rated the Ontario economy on a scale of one to five, he was surprised that their consensus was close to an average of 2.5. When asked about the next three years many thought “a 4” would be accurate. According to this group, the economic future for the most part was positive, even “optimistic,” pending the possibility of some surprises. The Great Recession for the most part caused not only a 20 per cent reduction in manufacturing but also a major restructuring that made it more efficient in the U.S. and Canada. As CIBC’s Benjamin Tal said, “What doesn’t kill you will make you stronger.” That along, with the drop in the dollar’s value, “which should go lower,” should help along the Canadian economy for the near term. Even so, with reduced manufacturing the service economy is more important than ever. “Services drive the economy,” said BMO’s Earl Sweet. Canada is well positioned in the service sector, with its well-developed logistics and e-tailing sector.

Housing, however, caused the most intrigue among the attendees. On everyone’s minds of course were the perennial questions—will housing prices stay overheated in the GTA, what about all those condos? Will there be a crash? What happens if interest rates go up?

BMO’s Sweet said that the market would likely absorb all the condos being built, due to immigration. “In few other North American cities, are there so many construction cranes,” Sweet said. “There is a growing preference toward condos in part because there is little if any single family home construction.” Immigration, however, has been lessened in the GTA from 55 per cent of those arriving to only 40 per cent. “That’s a concern if it falls more.”

TD’s Derek Burleton commented “credit goes to governments so far or keeping inflation under wraps because the impact of the recession has continued to keep it low.” None of the economists forecast a housing crash, though there are warnings in the U.S that “Canada is next” and that financial institutions are “shorting Canada.” Even so, these scary predictions were at odds with reality.

CIBC’s Tal said his major concern was a “recession caused by a monetary policy error. If interest rates rise “too quickly,” it could kill a recovery but that might not be known “until it’s too late.” Overall, however, the bottom line is: housing prices will continue to rise, tapering off in approximately 2016 or 2017 and they will likely stay at that level for some time.

Lastly, Leon wondered what kind of major threats the Dream Team foresaw that might threaten Canada. Among these concerns is high youth unemployment, not just in Spain where it reaches 60 per cent and Europe –up to 40 per cent — but here too. “Leaving a generation behind can be a serious problem,” said Tal. Scotiabank’s Warren Jestin cited oil disruption in Iraq, “the second largest OPEC producer,” as also another serious worry.

Overall the economic outlook might be better than pessimists in the media—or money managers in the U.S.—believe. The Chinese Gen Y’s love of quality consumer goods (while they “ship the junk here”) will fuel exports of branded products, especially from the U.S. from some time to come. The task for Canadian companies that don’t have the means to support large branding efforts is to “get involved in the U.S branded product supply chain.” A 19th century historian, Thomas Carlyle, called economics “the dismal science” but the five big bank economic gurus in Vaughan forecast not exactly sunny but certainly not ‘dismal’ times ahead. “There could be a lot of bright spots,” Leon commented afterwards. “PEO members are concerned with housing as they should be but the other factors described here will definitely be helpful to their businesses.”


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